1.
What is a secured borrowing arrangement in which the lender has a general claim against the
stock in trade of the borrower called?
Solution
A hypothecation is a secured borowing arrangement in which the lender has a general claim
against the stock in trade of the borrower. Under a pledge, the stock is kept under lock and key
by the lender and funds / loan is released to the borrower. Whenever the borrower requires
stocks, he needs to pay a portion of the loan so that the stocks are released to that extent.
However, under the hypothecation arrangement, the money is lent against the stock which are
with the borrower and can be utilised by him / her in business. In case of a default, the lender has
a right to seize the stocks in trade with the borrower to recover his dues.